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My Shocking Stance on Facebook

I just researched Facebook (FB) now that last quarter’s earnings report has had time to digest. Or perhaps it didn’t digest, it came back up. This stock doesn’t look good.

One Year Chart

First off — the chart shows this stock has been in a free-fall since day one. Investors in the shares really got taken to the cleaners. From $42 to $20 and now we have another weekly close with the stock at its lows. Ugly.

Profit growth was 9% last quarter. Also, profit growth was meh the quarter before FB went public. So that’s at least two meh quarters (three by my count) for a stock expected to sell for 40 to 60 times earnings.

It gets worse. Profit growth is expected to be flat next quarter. Quarterly estimates are falling so you can’t depend on that 27% growth 2QtrsOut. 2012, 2013 and 2014 estimates just got lowered. P/E of 41 is high. The company missed by 3 cents last quarter. How do you IPO then miss the very next quarter?

Fair Value

Profits are expected to grow 14% this year (this number is down from 28% a quarter ago). More shares will flood the market and nobody wants them. This stock is headed to $10.

Sharek’s Take

Facebook stock is doing a face plant. It’s gotten cut in half once and wants to do so again. Nothing here is positive outside of the expected Long Term Growth Rate of 27%. The trade of the decade is to short this stock and buy Apple (AAPL). The only way to stop this face plant is for management to issue a saucy dividend. Since they just took money from investors, I seriously doubt they will entertain giving some back.

View the Earnings Table here.
View the Ten-Year Chart here.
 
Disclosure: Clients of David Sharek owned shares of FB at the time of publication.

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